ITC in another FMCG line
Vivek Kaul Wednesday, February 08, 2006 22:25 IST
ITC reported another quarter of strong growth - its net sales growth of 37.5% was way higher than consensus estimates, as was the net profit growth of 24.8%. The higher-than-estimated growth was largely because of a pick up in cigarette volumes.
The company’s new FMCG business including processed foods, lifestyle retailing, matchboxes, agarbattis, greetings and stationery, saw an impressive 71% jump in turnover. However, these businesses continue to be a drain on overall profitability. Last quarter, they posted a loss of Rs 39.5 crore, or 15% of the revenues of Rs 260.6 crore. But this doesn’t seem to be bothering the ITC management, which will soon enter segments like soaps shampoos and detergents.
The company initially plans to launch these products through its e-choupal network, which according to analysts is a smart move considering that this network is mainly spread across areas which have very low consumption of products like soaps and shampoos. But going by the strategy ITC has followed with its other initiatives, it will only be a while before it launches these products nation-wide.
ITC, of course, given its huge cash reserves, would not mind incurring losses initially while trying to build up a presence in the new segments. Most of its new initiatives are businesses that have a long gestation period, and it would not be surprising to see a price war in the soaps and shampoos space soon. This certainly wouldn’t augur well for HLL, which has just about come out of its price war with P&G. It’s no wonder the HLL stock has underperformed its peer in the FMCG space by a huge margin this year.
ITC reported another quarter of strong growth - its net sales growth of 37.5% was way higher than consensus estimates, as was the net profit growth of 24.8%. The higher-than-estimated growth was largely because of a pick up in cigarette volumes.
The company’s new FMCG business including processed foods, lifestyle retailing, matchboxes, agarbattis, greetings and stationery, saw an impressive 71% jump in turnover. However, these businesses continue to be a drain on overall profitability. Last quarter, they posted a loss of Rs 39.5 crore, or 15% of the revenues of Rs 260.6 crore. But this doesn’t seem to be bothering the ITC management, which will soon enter segments like soaps shampoos and detergents.
The company initially plans to launch these products through its e-choupal network, which according to analysts is a smart move considering that this network is mainly spread across areas which have very low consumption of products like soaps and shampoos. But going by the strategy ITC has followed with its other initiatives, it will only be a while before it launches these products nation-wide.
ITC, of course, given its huge cash reserves, would not mind incurring losses initially while trying to build up a presence in the new segments. Most of its new initiatives are businesses that have a long gestation period, and it would not be surprising to see a price war in the soaps and shampoos space soon. This certainly wouldn’t augur well for HLL, which has just about come out of its price war with P&G. It’s no wonder the HLL stock has underperformed its peer in the FMCG space by a huge margin this year.
posted by Vivek at 11:47 PM
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